Shanghai and Shenzhen have again started to curb the increase in property prices. The surge of property prices in first-tier Chinese cities has started only last year, and it is considered a quick response from the authorities to try to suppress such an upgoing trend.

This is, however, not necessarily bad news. Doing something at an earlier stage is better than procrastinating actions until a point where heavy measures are needed to bring the situation back to normal.

Investors should not see mainland property shares from a pessimistic point of view. It is advisable to observe the future trend of these shares in order to decide on how to invest.

Big Firms Predict Subpar Performance of Mainland Banking Shares

Quite a number of mainland banking shares are expected to announce their performance results this week. As of now, they are the ones offering high dividends, with some of them currently standing at 0.08 per share.

From the perspective of big firms, however, mainland banking shares are pressured by a huge amount of bad debts, and they might report poorer performance.

This explains why their announcement of performance results this week matters so much. If they record a subpar performance and announce a lower dividend payout, the previously high level of dividend payouts would become unlikely to sustain, which ultimately affects the share prices.

If we observe it from another perspective, we know that many investors invest in mainland banking shares with the very purpose of earning a high dividend payout.

Whether or not mainland banking shares are able to maintain current price level, or go up again, would have to depend on dividend yield too. In fact, the announcement of dividend payouts is sometimes even more important than profits.

This was the case when HSBC holdings (00005) announced its performance — it recorded lower profits but offered higher dividend payout per share, and it thus stabilised its share price.

Having considered the bad debt problems among the banks, the Chinese government has pondered over the possibility to turn bad debts into shares.

Rumour started to make its rounds in the market that some listed companies suffering from heavy losses might be embarking on this debts-turn-shares experiment. The result: It would shoot up their share prices.

My point of view is that it is very risky to speculate on these shares. When banks agree to turn bad debts into shares, they must have been pressing the share prices low enough.

In such scenarios, it is the companies asking banks for help – and not the other way round. This gives the banks an upper hand in the bargain to further suppress the share prices so that they can buy up businesses at a much-discounted price.

If they buy in shares much lower than market price, do you think investors are able to speculate it?

Meanwhile, Dr Chan will be speaking at our upcoming Shares Investment Conference (SIC1H2016). He will cover the macroeconomic aspect of Asia’s markets and how external factors will affect our APAC region.

To find out more, please click on the button below. *Note: This is a Chinese event.